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Regulatory, market and societal forces are changing the global landscape. Fossil fuel companies cannot expect business as usual for much longer

Regulatory, market and societal forces are changing the global landscape. Fossil fuel companies cannot expect business as usual for much longer

For many decades, the only time most people thought about fossil fuel companies was when they filled up at the gas pump. Environmentalists sounding the warning bell early on about climate change were considered by many to be fearmongers.

Today, the connection many people feel to these companies is more profound. Links between high-carbon fuels and escalating climate problems are becoming more obvious. And it's not just students and activists clamouring for radical changes; leading corporations and investors are now adding their voices to the chorus calling for stronger action to reduce our fossil fuel dependency.

As the world approaches irreversible and catastrophic levels of climate change, there is a growing urgency to diversify our energy sources and leave much of the world's remaining fossil fuel reserves in the ground. Oil and coal companies must recognise that it is in their best interest to plan for a low-carbon future. Consumers demand it, their investors demand it, and it's the smartest business strategy – because the world is changing.

Coal demand is softening in many parts of the world, renewable technologies are becoming more cost-competitive and there is a growing realisation that reliance on the most expensive unconventional oil sources such as Canada's oil sands is fraught with risk.

More importantly, people around the world are beginning to understand that decisions in the boardrooms of fossil fuel companies impact their daily lives.

Chinese citizens are protesting "apocalyptic" coal pollution that is shutting down airports and entire cities. A recent Climate Asia survey showed that 78% of Chinese people believe climate change is happening. On the other side of the world, at least 84% of people in US states recently hit by drought or sea-level rise say that global warming is happening, according to a new Stanford University study. Meanwhile, student activists around the world are calling on university endowments to divest from fossil fuel companies.

Clearly, climate change isn't just fossil fuel companies' problem; it is everyone's problem. But the decision by fossil fuel companies to invest $674bn last year in developing new, potentially unusable reserves – a number that dwarfs the $281bn in total global investment in clean energy in 2012 – has a tremendous impact on our future.

Companies across the economy and institutional investors are among those recognising the need to transition from fossil fuels to cleaner energy sources.

Nearly 60% of the combined Global 100 companies have set goals for renewable energy sourcing and greenhouse gas reductions. Companies are embracing cleaner energy not only because it's cost-effective and sustainable, but also because they understand that fossil fuel energy is increasingly risky and prone to volatile price swings.

Just last month, a new and powerful set of market actors – some of the world's largest pension funds and money managers – publicly recognised the connection between their financial assets and the decisions being made by fossil fuel executives. As part of this effort, 70 global investors with collective assets totalling $3tn (£1.85tn) made the first ever joint request to the world's 45 largest oil, coal and power companies – including Exxon, BP and Arch Coal – to assess the financial risks that climate change and these other trends pose to your business plans. The investors, co-ordinated by Ceres and the Carbon Tracker Initiative, sent letters to the companies this fall requesting detailed responses by early next year.

"We would like to understand (the company's) reserve exposure to the risks associated with current and probable future policies for reducing greenhouse gas emissions by 80% by 2050," the investors wrote in their letter to oil and gas companies. "We would also like to understand what options there are for (the company) to manage these risks by, for example, reducing the carbon intensity of its assets, divesting its most carbon intensive assets, diversifying its business by investing in low-carbon energy sources or returning capital to shareholders."

These investors know that capital spent today will determine the future carbon intensity of our global energy system. The policies and technologies that will be in place in 2020 are likely to be very different than those we see now. This will make business-as-usual a risky bet for fossil fuel companies.

It may be that the voices of individuals, companies and investors are, in fact, now being heard in fossil fuel boardrooms. Companies have generally acknowledged that the investors' effort raises legitimate issues. Just last week, Shell's CEO told Bloomberg: "It would be stupid for the oil and gas industry to say that renewables will not play a major role in the energy system of the next few decades today's investment levels into wind and into solar have a very rapid growth. Renewables will be developed."

Reams of powerful research the past few months by the International Energy Agency, Carbon Tracker, World Bank, United Nations, and investment banks have all connected the dots between status-quo burning of fossil fuels and the catastrophic impacts of climate change on our horizon. But these reports are more than just words on a page – individuals, companies and investors are already seeing the profound risks today, and they are making their voices heard.